When the marketers at Coca-Cola Co. (KO) recently wanted to reach out to teens like Lauren Salapatek, a 17-year-old high school junior in suburban Chicago, they didn't do it through TV ads during the Grammys or Super Bowl. Instead, the soda giant lured her to the Coke Red Lounge, a gathering area for mall rats that it built in a shopping center in the northern 'burbs. The lounge, which offers exclusive music, movies, and videos piped in via sound domes and a plasma-screen media wall, has quickly become a regular afternoon and evening gathering spot for Salapatek and her friends. "It's cool, it's comfortable, it's in the middle of the mall," she nods approvingly as Linkin Park's Faint blares from the hooded speakers.
Coke's lounges, created with the help of the trendy Rockwell Group design shop, symbolize the sea change in marketing that's under way at the once-fabled marketing icon. For decades, Coke was the master of the 30-second TV spot: Advertising Age ranked Coke's classic "Hilltop" and "Mean Joe Greene" ads as two of the best ever. But thanks to media fragmentation and the growing use of devices like TiVo that let viewers skip ads altogether, megamarketers can now hit no better than 15% of the population with an ad in prime time -- far less than the 40% reached as recently as the mid-1980s. Coke signaled the shift early last year when President Steven J. Heyer rattled Madison Avenue with a speech warning that "the days of mass, homogenous marketing are behind us."
BONDING EXERCISES. In the past year, Coke has accelerated its shift beyond passive TV ads toward a so-called experiential approach that uses events and activities to build a closer bond with consumers. So far it's hard to see a payoff in terms of more Coke sales. But the decision of such a hugely influential marketer to shift big dollars away from traditional ads is making ripples far from Coke's Atlanta headquarters.
The idea is that instead of bombarding consumers with hard-sell ads that they're going to tune out anyway, the brand will do better if it subtly infiltrates their daily routines. While management won't discuss how it allocates its marketing dollars, ad tracker TNS Media Intelligence/CMR estimates (TNN) that last year through October Coke spent just $188.7 million on TV advertising in the U.S., a sharp drop from $268.1 million in 2001.
Coke has diverted money into new initiatives that allow it to embed itself into the favorite activities of its target audience, everything from sports to music to the Internet. In Spain, Coke launched a Web site where the large share of twentysomethings who still live at home can design their own "virtual apartment," Sim-City-style. In Britain, the soda giant created a Web site, myCokeMusic.com, that lets surfers mix their own tracks -- and then submit them for a "thumbs up" or "thumbs down" review by peers.
Coke has a lot riding on Heyer's grand experiment because its marketing has seriously stumbled in recent years. Former CEO M. Douglas Ivester made no secret of his distrust of Madison Avenue, pumping money into merchandising and trade promotion. While sales volume soared, Ivester's heavy reliance on promotions led to deep discounting that depressed North American profits for a considerable stretch.
When Douglas N. Daft took over as CEO in 2000, he vowed to return Coke to its marketing greatness. But at a time when admakers' "big ideas" have a harder time resonating with a splintered audience, the company has been criticized for its erratic efforts -- one oddball ad featured a wheelchair-ridden grandmother going ballistic after being told there was no Coke at a party. "Brand allegiances have changed so drastically. You are no longer a Chevy family or a Coke family," says Tom Pirko, president of New York consultants BevMark LLC. "They're an old company trying to be a new company -- that's going to take some time."
Some believe Heyer is a leading candidate to succeed Daft -- provided his strategy works. Heyer notes that "purchase intent" -- the likelihood that consumers will buy a product -- has risen 21% for the flagship Coke Classic brand under the new approach. However, sales volume in North America, which generates a quarter of Coke's sales and profits, remained flat in 2003, thanks to oversaturation and stiff competition.
Under Heyer, even the nature of Coke's TV spending has changed. Now, the company increasingly wants to be part of the show. It paid $20 million-plus to get red Coke cups on the desks of the judges of Fox Network's (FOX) American Idol and to have the traditional "green room" guest waiting area renamed -- and repainted -- the Coke Red Room.
To be sure, this new approach isn't without risks of its own. Paying for product placement or program sponsorships can backfire if the show gets canceled. But with consumers increasingly tuning out TV ads, the Atlanta soda giant may have no choice but to find ways of marketing a New Coke to consumers. By Dean Foust in Atlanta, with Brian Grow in Chicago